Saudis to keep Aramco’s hold on oil intact ahead of share sale

Crown Prince Mohammed bin Salman is preparing to roll out details of a sweeping plan to develop infrastructure and industry. Saudi Arabia’s crown prince insisted the stalled plan to sell shares in oil giant Aramco will go ahead. Saudi Aramco plans to retain exclusive rights to develop Saudi Arabia’s oil reserves.

Saudi Arabia is seeking 1.6 trillion riyals ($425 billion) of investment in railways, airports and industrial projects by 2030. The comments show 33-year-old Mohammed bin Salman’s determination to press ahead with the IPO.

“There is no intention whatsoever to chip away at Aramco’s exclusivity and its concession,” Saudi Energy Minister Khalid Al-Falih told reporters on Saturday.

The kingdom could sign about 70 deals worth more than 200 billion riyals when Prince Mohammed presents the plan on Monday, according to Energy Minister Khalid Al-Falih. The IPO project was first announced in 2016 as the cornerstone of the prince’s Vision 2030 plan to modernize the Saudi economy.

OPEC’s biggest producer is preparing to sell shares in the state oil company in what could be the biggest initial public offering ever. Soon after, Aramco put the IPO on hold and instead started talks to buy a majority stake in local petrochemical giant Sabic, a deal potentially worth $70 billion.

Saudi Arabia is getting a makeover under the crown prince. Prince Mohammed said the IPO’s delay had its origin in mid-2017, when it became clear that Aramco needed a push into petrochemicals. Saudi Arabia relies on oil sales for the bulk of its government income. To get ready for the IPO, Saudi Arabia granted Aramco a concession to pump most of the country’s crude, Al-Falih said in Riyadh.

The kingdom’s infrastructure from roads to water supply was ranked 40th among 140 nations in the World Economic Forum’s latest Global Competitiveness Report. The Aramco IPO would be a seismic event for financial markets.

It’s trying to develop new industries to diversify its economy and create jobs under a plan spearheaded by Crown Prince Mohammed bin Salman. The share of the government’s oil income will grow to 68 percent of total revenue this year. For Wall Street, it would be a money-maker, with banks from JPMorgan Chase & Co. to Citigroup Inc. already working for Aramco.

Aramco partners with oil multinationals such as Total SA and Exxon Mobil Corp. in refining, while extracting all its hydrocarbons on its own. Al-Falih has said the program is expected to contribute $320 billion to the Saudi economy by 2030, equivalent to almost half of the country’s gross domestic product last year, and create 11 new industries from aerospace to biomedicine.

The most recent statements on when the IPO would happen provided considerable room for maneuver. Aramco’s concession has reserves of 263.1 Bbbl, according to audit, while the remainder lies in an area Saudi Arabia shares with Kuwait.

The kingdom is planning to boost expenditure this year by 7 percent, basing this year’s budget on an oil price estimated by Bloomberg Economics. Energy Minister Khalid Al-Falih said in August that Saudi Arabia would go ahead with the project “at a time of its own choosing when conditions are optimum.”

Nabil Al-Amoudi, the Saudi minister of transportation, said a new airport for Riyadh, the capital, is also under consideration. “Saudi Arabia is not only conforming- we’ve gone significantly above our targets in order to reassure markets and bring stability.”- said Al-Falih.

 

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